Please ensure Javascript is enabled for purposes of website accessibility

Genworth Continues to Disappoint

By Zeeshan Siddique – Updated Apr 6, 2017 at 7:36PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Genworth reports losses as mortgage business continues to suffer.

Genworth Financial's (NYSE: GNW) widened operating loss in its U.S. mortgage insurance business was a disappointment last quarter as the economy continues to grapple with larger issues such as high unemployment and a snail-paced recovery.

Looking back
Genworth posted a net loss of $96 million compared to a net income of $82 million in the preceding quarter, and net income of $42 million in the same quarter of 2010. This was primarily due to ballooning operating losses in its U.S. mortgage segment. The company's total revenue improved to $2.65 billion from $2.41 billion in the year-ago quarter. This much good news was due to growth in net investment income and insurance and investment product fees.

While its retirement and protection and international segments witnessed year-over-year increases of 31% and 2%, respectively, its U.S. mortgage insurance segment more than quadrupled its operating losses. MetLife (NYSE: MET), which reported net income of $1.2 billion, saw the operating earnings for its retirement products grow 48% on higher separate account fee income.

The concern
The loss in the U.S. mortgage insurance segment was due to $300 million in charges related to reserve strengthening, which in turn was a result of a decline in cure rates for delinquent loans and continued aging trends in the delinquent loan inventory. MGIC Investment (NYSE: MTG) also posted quarterly losses on higher defaults on mortgage loans. The higher loan defaults reflect the sluggishness that is still prevailing in the U.S. residential real estate market.

The poor performance of its U.S. mortgage insurance segment has once again weighed down Genworth's profits. Management has therefore decided to eventually split its mortgage insurance business. The revenue from this segment accounts for just 7% of Genworth's total revenue. The decision of splitting this business seems plausible since it will help the company to focus more on core operations and report profits eventually.

The Foolish bottom line
Although hurt by mortgage loss, Genworth still looks better than peers such as Radian Group (NYSE: RDN), PMI Group (NYSE: PMI), or MGIC. With its diversified business and, more importantly, its other segments performing impressively, Genworth has a relatively better chance of getting back on track. And the split should further boost its performance in the long run. But at the moment, it's still struggling under mortgage losses, and I would remain cautious.

Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in the article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Genworth Financial, Inc. Stock Quote
Genworth Financial, Inc.
GNW
$3.75 (7.29%) $0.26
MetLife, Inc. Stock Quote
MetLife, Inc.
MET
$62.94 (3.55%) $2.16
Radian Group Inc. Stock Quote
Radian Group Inc.
RDN
$19.96 (3.47%) $0.67
MGIC Investment Corporation Stock Quote
MGIC Investment Corporation
MTG
$13.38 (4.33%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.